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Grasim Industries (GRASIM)
Cement
VSF – volume spurt offsets weak pricing. Grasim Industries reported a strong 22%
outperformance with net income of Rs4 bn led by 44% sequential increase in VSF
volumes that partially absorbed the weakness in VSF prices. We are encouraged by the
stability in VSF pricing after the slump witnessed during the quarter, though remain
watchful of the overall demand environment. At 9X on FY2013E earnings, Grasim
remains our preferred pick in our cement coverage. Maintain BUY and PT of Rs2,900.
Impressive VSF volumes and higher other income drive outperformance
Grasim reported revenue of Rs56.5 bn (-4% qoq, 27% yoy), operating profit of Rs9 bn (-43%
qoq, 25% yoy) and net income of Rs4.2 bn (29% yoy) against our estimate of Rs52 bn, Rs8.4 bn
and Rs3.4 bn, respectively. Operational outperformance was driven by higher-than-estimated VSF
volumes (78,959 tons against our estimate of 63,925 tons) aided by improved consumption and
restoration of inventory levels. Higher other income further allowed for a 22% outperformance in
net income. We discuss performance of each segment in subsequent sections.
VSF – prices stabilize post sharp correction, demand environment improves
Grasim’s VSF division registered 18% sequential decline in realizations on account of sharp price
correction in July and August—though we are encouraged by the stabilization in prices. Further,
we are also encouraged by upward trend in cotton prices and factor a full year gross realization of
Rs140/kg (against Rs136/kg in 1HFY12).
Cement – seasonally weak quarter, cost pressures subside marginally
Grasim’s cement division’s (UltraTech Cement) average realization decreased 6% qoq (~Rs13/bag)
on account of pricing weakness in July and August. Cement prices on an average declined by
Rs14-15/bag sequentially, typical of the weakness witnessed in the monsoons. Our channel
checks, however, indicate some revival in cement prices in several pockets—especially those of
West and North India. Further, prices in South India (~25% of UltraTech’s sales) remained stable at
Rs275-280/bag.
Maintain BUY with a target price of Rs2,900/share
We maintain our BUY rating with a revised target price of Rs2,900/share. On comparative
valuations on FY2013E, our assigned valuation implies 4X EV/EBITDA for the VSF business. We
value Grasim’s 60% stake in UTCEM at our target price of UTCEM (Rs1,220/share) and factor a
holding company discount of 20%. We have revised downwards our FY2013E EPS estimates
marginally by 2% as we lower our realization assumptions.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Grasim Industries (GRASIM)
Cement
VSF – volume spurt offsets weak pricing. Grasim Industries reported a strong 22%
outperformance with net income of Rs4 bn led by 44% sequential increase in VSF
volumes that partially absorbed the weakness in VSF prices. We are encouraged by the
stability in VSF pricing after the slump witnessed during the quarter, though remain
watchful of the overall demand environment. At 9X on FY2013E earnings, Grasim
remains our preferred pick in our cement coverage. Maintain BUY and PT of Rs2,900.
Impressive VSF volumes and higher other income drive outperformance
Grasim reported revenue of Rs56.5 bn (-4% qoq, 27% yoy), operating profit of Rs9 bn (-43%
qoq, 25% yoy) and net income of Rs4.2 bn (29% yoy) against our estimate of Rs52 bn, Rs8.4 bn
and Rs3.4 bn, respectively. Operational outperformance was driven by higher-than-estimated VSF
volumes (78,959 tons against our estimate of 63,925 tons) aided by improved consumption and
restoration of inventory levels. Higher other income further allowed for a 22% outperformance in
net income. We discuss performance of each segment in subsequent sections.
VSF – prices stabilize post sharp correction, demand environment improves
Grasim’s VSF division registered 18% sequential decline in realizations on account of sharp price
correction in July and August—though we are encouraged by the stabilization in prices. Further,
we are also encouraged by upward trend in cotton prices and factor a full year gross realization of
Rs140/kg (against Rs136/kg in 1HFY12).
Cement – seasonally weak quarter, cost pressures subside marginally
Grasim’s cement division’s (UltraTech Cement) average realization decreased 6% qoq (~Rs13/bag)
on account of pricing weakness in July and August. Cement prices on an average declined by
Rs14-15/bag sequentially, typical of the weakness witnessed in the monsoons. Our channel
checks, however, indicate some revival in cement prices in several pockets—especially those of
West and North India. Further, prices in South India (~25% of UltraTech’s sales) remained stable at
Rs275-280/bag.
Maintain BUY with a target price of Rs2,900/share
We maintain our BUY rating with a revised target price of Rs2,900/share. On comparative
valuations on FY2013E, our assigned valuation implies 4X EV/EBITDA for the VSF business. We
value Grasim’s 60% stake in UTCEM at our target price of UTCEM (Rs1,220/share) and factor a
holding company discount of 20%. We have revised downwards our FY2013E EPS estimates
marginally by 2% as we lower our realization assumptions.
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